OREANDA-NEWS. March 23, 2015. Fitch Ratings has assigned final ratings to RESIMAC Bastille Trust - RESIMAC Series 2015-1NC's residential mortgage-backed floating rate notes.

The issuance consists of notes backed by both conforming and non-conforming residential mortgages originated by RESIMAC Limited (RESIMAC). The ratings are as follows:

AUD262.50m Class A1 notes: 'AAAsf'; Outlook Stable;
AUD45.0m Class A2 notes: 'AAAsf'; Outlook Stable;
AUD43.12m Class B notes: 'NRsf';
AUD5.63m Class C notes: 'NRsf';
AUD7.5m Class D notes: 'NRsf';
AUD4.5m Class E notes: 'NRsf';
AUD3.75m Class F notes: 'NRsf'; and
AUD3.0m Class G notes: 'NRsf'.

The notes are issued by Perpetual Trustee Company Limited in its capacity as trustee of RESIMAC Bastille Trust - RESIMAC Series 2015-1NC.

At the cut-off date, the total collateral pool consisted of residential mortgages provided to 1,021 borrowers originated by RESIMAC and totaling approximately AUD375m. Credit-impaired mortgages comprise 29.3% of the pool while reduced documentation loans make up 70.3% of the portfolio. Of the mortgages in the portfolio, 25.0% are interest-only loans. Investment loans represent 30.2%, with loans for owner-occupation making up the remainder. The agency has incorporated all the above-mentioned factors into its credit analysis of the transaction.

KEY RATING DRIVERS
Sufficient Subordination: The Class A1, and A2 notes benefit from credit enhancement (CE) of 30% and 18% respectively, provided by the subordinate Class B, C, D, E, F and G notes; the liquidity facility; and RESIMAC's servicing and underwriting capabilities.

Strong Excess Spread: The transaction benefits from a strong flow of excess income, which is available to cover losses. RESIMAC's non-conforming borrowers pay significantly higher interest rates compared to borrowers of conforming loans.

Structure Supports Higher Notes: The retention mechanism supports faster paydown of lower-rated notes before the call date by allocating a part of excess spread to the outstanding principal, progressively reducing the weighted average (WA) margin. Additional Class G notes will be substituted to the retention amount, so CE to higher notes is not diminished.

Significant Low-Doc Composition: Low-documentation loans and specialist lending make up a major proportion of the portfolio. The mortgage pool's WA seasoning was 22.7 months, WA loan to value ratio (LVR) ratio was 69.2%, and the indexed WA LVR was 68.2%, with credit-impaired loans making up 29.3%. The pool is geographically diversified across Australia.

Experienced Originator/Servicer: RESIMAC is an experienced specialty mortgage lender, having begun its non-conforming originations in 2007.

RATING SENSITIVITIES
Unexpected decreases in the value of residential property, or increases in the frequency of foreclosures, and loss severity on defaulted mortgages could produce loss levels higher than Fitch's base case, in turn resulting in potential negative rating actions on the notes. Fitch has evaluated the sensitivity of the ratings assigned to the notes to increased defaults and decreased recovery rates over the life of the transaction.

Its analysis found that both the Class A1 and A2 notes' ratings under Fitch's medium (15% increase) default scenario saw a two notch downgrade to AAsf, while under the severe (30% increase) default scenario the ratings saw a five notch downgrade to Asf. Similarly under Fitch's medium (15% decrease) recovery rate scenario the ratings saw a two notch downgrade to AAsf and under a severe (30% decrease) recovery scenario the Class A1 and A2 notes' ratings saw a five notch downgrade to Asf.

The transaction shows greater sensitivity to a combination of both increased defaults and decreased recovery rates with the Class A1 and A2 notes both experiencing a 5 notch downgrade under the medium multiple stress. The Class A1 and A2 notes experienced a 5 and 6 notch downgrade respectively under a severe multiple stress.

The transaction structure supports lenders' mortgage insurance (LMI) independent ratings for the Class A1 notes. Therefore LMI is not required to support the rating due to the level of credit support provided by the lower notes.

Key Rating Drivers and Rating Sensitivities are further discussed in the corresponding New Issue report entitled "RESIMAC Bastille Trust - RESIMAC Series 2015-1NC", published today. Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.